12/20/18

As part of the Company's ongoing evaluation of priorities and direction and our internal processes where we follow up with all of our contracts and consultants on a regular basis to evaluate their work and deliverables, the Company has decided to shift its focus on the remaining work programs associated with certain additional Agreements. These Agreements had an initial value of $3,710,000 at inception. The Company has determined to cancel the remaining work associated with these Agreements and is in discussions with the service providers involved to facilitate that decision

Here's one that nobody up there is talking about. Yet. From IKN499, last Sunday.

Keeping an
eye on Bolivia
redux

As widely expected, last week
President Evo Morales of Bolivia
got judicial approval for the change of his country’s constitution that will
allow him to run once again for re-election in the 2019 Presidentials,
scheduled for the back end of 2019. As noted a few weeks ago, this election
might not turn out in quite the same way as any other in the last decade,
because Evo’s presidency is showing signs of supporter fatigue, there’s dissent
among what are understood to be his base supporters and now we have far right
wing Jair Bolsonaro about to become President of its neighbour, the vastly
larger and richer Brazil, who has previously pledged allegiance to the far
right wing politicos in the Bolivia’s largest city in the East, Santa Cruz.

It is therefore interesting (as in
the Chinese curse) to see Andres Oppenheimer, the hard right wing political
commentator in both Spanish and English language Americas, running an op-ed
piece last week entitled, “Bolivian
President Evo Morales is carrying out a slow-motion coup. Why isn’t the region
talking about it?” (11) and
comparing Bolivia’s economy
to that of Venezuela and
warning of dire consequences etc etcif Evo is left unchecked (yes you can compare
the hard left political stances of Bolivia
and Venezuela, but Bolivia’s
economic stability has been remarkably good for the last ten years and shows no
sign of weakening).

I continue with my sneaking feeling that Bolivia
may be the surprise political flashpoint of the region next year. If so, the
“buy when blood in streets” maxim goes into effect, which also means of course
that you shouldn’t get too interested too early. Watching brief.

12/19/18

I think that's how one phrases it correctly. Here's the link, here's the blurb:

A mix of geopolitical and economic uncertainties will likely create the
perfect storm for precious metals and miners next year, said Brent Cook
of Exploration Insights. “Volatility and chaos will be the theme
[next year]. We’ve got BREXIT, Italy, German politics, Saudi Arabia,
U.S.-China tariffs, they’re arresting people in Canada, we’ve got an
unstable narcissist in the White House that’s being backed into a corner
capable of doing anything, bear market beginning, and I think the
interest rates are going to be slowing,” Cook told Kitco News.Cook said that all these risks should bode well for gold and gold miners next year, with miners outperforming the bullion.

12/17/18

This was read by subscribers to The IKN Weekly on Sunday. Now it's your turn.

Newmont (NEM) and Continental Gold
(CNL.to): Intel

I semi-promised
I wouldn’t come back to this whole CNL Buriticá thing for a while just a couple
of editions ago, but I’m going to have to break that semi-promise. This
weekend, a reputable source passed on intel that by its nature must remain
unconfirmed (so please keep that in mind, I have no second lead on this) but
due to the respect I have for the seriousness of my source it’s going to get an
airing.

This: According to my source, the board of Newmont (NEM) is meeting this week
coming to decide, in an up/down yes/no manner, whether to buy out the remaining
80% of Continental Gold (CNL.to) that they do not already own. Also, my source
stated that NEM is not at all happy with the current situation there and says that
if NEM stays, they want full control and ownership of the project. End.

Okay, the beans spilled let me
first reiterate that though my source is a good one, a serious mining
professional and has proven to me over the years to be a trustworthy individual,
the rumour is unconfirmed and I have no second line on the information. With
that said and after consideration, as long as we assume the intel is solid
here’s a thought or two (after conferring with a few trusted peers, who helped
crystallize ideas and added a couple of angles), done in bullet point form.

Critically, NEM is in a standstill agreement with CNL.
Therefore there can only be a friendly takeover. This means NEM would have
to table enough money to interest CNL, its board and its shareholders.

Considering the current price range (let’s say
“between $2.00 and $2.30” for argument’s sake) and from where CNL has
dropped recently (I’m going to rough-say $4.00, before its recent security
issues came up, feel free to argue that number), it would need a very big
premium to current market to interest CNL.

The NEM board will know this as they make their
decision. And in the event they decide to make an offer, it would almost
certainly be of the one-time, “take it or leave it” type.

This would mean that, in effect, NEM would have to
ignore the current market price for CNL and make an offer that’s more akin
to what CNL think their company is worth. However and also critically, the
current stock price isn't just a number picked out the air or floating in
its own dimension, this current range is a reflection of CNL's
well-documented troubles and issues. NEM is fully aware of all of them and
there are a whole list that start with the deaths of its two employees at
Buriticá town and then the three geologists at its Berlín project. Other
matters are certainly of concern to them as well, such as exposing more of
its own company employees more directly (instead of being there on an
occasional and consulting/advisory role), the judicial uncertainty in the
country (see Regional Politics today for the latest example), the
continued presence of illegal/informal miners and far-right wing
paramilitary groups. Also, I am quite sure NEM is considering the
potential liability of legal actions brought against the company by the
families of the dead employees, especially the geologists. The recent
resignation of CNL country president Restrepo was a necessary move, but
it’s also a recognition of responsibility for the internal mistakes that
led to the fatal incident.

At this point, we should also note that NEM has not
ignored the current situation, to the point where the NEM CEO made
prepared comments on the problems during the company’s 3q18 Conference
Call.

Another subject is the NEM corporate culture, which
has always been notably (even notoriously) conservative. This is not a
company of risk-takers and that’s particularly true on the issue of
political risk and social security. It’s worth recalling the way NEM
entered into Buriticá, via a minority purchase which brought them de facto
control of the project. For around U$105m they got 19.9% of the company,
but they also got directors on the board and their technical team leading
the build-out. It was in effect a call option on 10m oz of high grade gold
and for the price, it was a smart bet on a potential risk/reward basis,
they would be inside the company and the project and would know whether to
pull the trigger. I know that U$105m is real money, but it’s the type of
sum NEM can risk without it affecting the company (too much). Also, we
should note that if NEM decides to exit, they’re going to get a decent
wedge of that outlay back.

Therefore, the application Occam's
Razor gets me to the call that NEM will likely bail. I have no idea how they’d
do that and there are a whole range of options, from keeping the current share
position for a while, not taking up their pro-rata rights on any new financing,
selling in a block or piecemeal way, entertaining offers for their minority
share position etc. Also, it may not effect the project in the longer-term
because I’ve also picked up talk that streaming companies are interested in
financing the missing capex. If true, CNL may end up getting there on its own
and becoming a success, but if NEM does back out CNL is going to take a near-term
share price hit, that’s a certainty.

The bottom line is this:

1)I have unconfirmed intel from a reliable source. The rest
of today’s piece is built on the assumption that the intel is correct.

2)I think the most likely NEM decision at this point will be
to back out of CNL and Buriticá. They may do this by tabling a “take or leave
it” offer to CNL that is too low. They may simply decide not to go any further.
If NEM leaves then the CNL share price will take a hit, at least in the
near-term and perhaps for the longer-term as well.

3)However, be clear that I may be wrong. NEM and CNL could
reach an agreement, NEM buys CNL at a very high premium to this weekend’s share
price, those betting on the junior today would make a handsome return in a
short period of time. There’s a binary trade on offer here.

And finally, for what it’s worth I
will not be trading this development personally and will remain neutral CNL. I
could make up a rationale for this decision that would sound perfectly
reasonable, but the real reason is that I have a moral repugnance to the way
CNL goes about its business and even shorting it to make money would be too
vindictive on my part to be healthy. I pass this intel and analysis on an as-is
basis, do with it what you will.

UPDATE: Rather than re-edit I’m
going to add this new information on here, as the above shows the thought
process and now this helps solidify things a little more. After casting the net
in a couple of specific places and reaching out to people that may know, I
received a reply from a 100% solid, zero BS, ultra reliable source. This person
told me that they’d been asked by a powerful private equity group in the mining
sector about Buriticá this week. The PE group wanted to know their thoughts on
the project and asset, their thoughts on the management (specifically CEO
Sussman) and said there was an opportunity for them to get control. This goes
some way to corroborating my original intel (it’s not an exact match, but if
you believe this to be a coincidence then I have a bridge to sell you). It also
suggests that Newmont is already shopping its 19.9% portion around.

A solid overview of how cost curves work and why they're important, posted up by Doug Beattie at his bog 'Mining Ramblings' this weekend. Go check it out here and learn something useful about the industry. Nice job of work, sir.

Follow the link here to a very welcome addition to the internet mining world, the brand new blog "High Grade" run by the Luis, better known as @EconomicAlpha on Twitter. Ever since I started back on Twitter early this year I've been hugely impressed and often educated by Luis and his extremely sharp eye for mining financials, it can only be a good thing that he's decided to take the plunge and go longer form on us as well.

We also have a first real post from him today, a look at the news out of Wesdome Gold (WDO.to) last week. For the record, he's called WDO early and well for a long time and those people who have taken his advice on the stock have been handsomely rewarded. That goes for his calls on Kirkland Lake (KL) in the past couple of years as well, they've been outstanding. His WDO post is on this link right here, go take a look. Welcome to blogging, Luis.

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